One of the big dovish surprises, just like in the December FOMC meeting, was that even as the Fed raised its economic outlook by increasing its GDP and employment projections, it kept its PCE inflation projection flat for 2018 vs December, upgrading it only for 2019 and 2020 by 0.1% to 2.1%
And, predictably, this was the first question asked. Powell’s response was modestly elusive saying Inflation remains below 2% long-run objective and that the shortfall partly reflects unusual price declines, in other words he expects it to rise as one-time factors drop out of the calculation.
Powell also confirmed the Fed’s “symmetric” inflation target and repeated the Fed’s core view that transitory factors – such as cell phone plans which will no longer have a Y/Y impact next month – explain inflation:
“In coming months as those earlier declines drop out of the calculation, inflation should move up closer to 2 percent and stabilize around that level over the medium term. Various forces will continue to affect inflation, at times it may be above 2 percent, just as at times it may be below. Our inflation objective is symmetric in the sense that we are trying to prevent persistent deviations from 2 percent in either direction.”
Powell also warned against hiking too slowly or too fast, noting that the outcome in either case could be adverse, and in the former case would lead to aggressive tightening down the line.
The Fed chair also said that he wouldn’t say he “tolerated an undershoot of the inflation goal” and that the Fed will always be seeking 2% inflation.
And to nudge the dovish case, he noted that there is “no sense in the data” that inflation is about to run away.
Ironically, as he said that equities were sliding and are now red.